After months of speculation over the health of Italy’s banking sector, another Italian lender is in the spotlight after the European Central Bank (ECB) demanded Banca Carige to see new capital plans as it tries to overcome a management crisis.
The Genoa-based bank Banca Carige said on Sunday that the ECB has requested to see how the bank will meet minimum capital thresholds amid an ongoing management crisis. The ECB has also said that such capital plans can be submitted later, if the lender decides to merge with another institution. Banca Carige has lost its chairman and deputy chairman in recent weeks, alongside two board members, over disagreements with the bank’s chief executive.
This crisis adds up to the pile of problems in the Italian banking system, where crisis-legacy issues remain, with one of the biggest problems being a build-up of non-performing loans.
Veneto Banca, Banca Popolare di Vicenza and Monte dei Paschi have all made headlines in the last year for requiring help from the Italian government to avoid a wider collapse. The former two received a cash buffer of 4.8 billion euros ($5.63 billion) and state guarantees of 12 billion euros ($14.08 billion); whereas the latter received a cash injection of up to 6.6 billion euros ($7.4 billion).
Analysts argue that the several attempts to rescue Italian banks show that the mechanisms used to prop-up banking institutions, like those in Italy, are not sufficient – and could ultimately put the entire European system at risk.
“That speaks to how robust the mechanism in the EU is, because you can only make so many exceptions before you start questioning the whole bail in-bail out system,” Luca Raffellini, head of business and financial services at Frost & Sullivan, told CNBC Monday.
He also said that the best way to reduce the level of bad loans in Italy now seems to be through the “decent market for securitization” — which allows the merger of several kinds of debt, for instance debt related to mortgages and credit card loans, and sell them together to investors.
However, Raffellini warned on “Squawk Box Europe" that this might not take place depending on what the Italian government, which came into power in June, decides to do.